Like-kind exchange has been a popular tax deferral tool for decades. Under IRC 1031, a taxpayer can defer tax on gain from the sale of a business or investment property if it is exchanged for like-kind property. Real property is generally like-kind to all real property while personal property has slightly more stringent requirements. In terms of like-kind exchange, it is generally accepted that the definition of real property by state law is followed. As such, fixtures identified under cost segregation, though being depreciated under Section 1245 as personal property, are still considered real property for IRC 1031 purposes. With the implementation of new tax laws under the Tax Cuts and Jobs Act (TCJA), the definition of real vs. personal property quickly became a heated debate amongst experts. Many were left wondering what impact the Tax Cuts and Jobs Act had on Cost Segregation and 1031 Exchange.
The concept of tax-deferred, like-kind exchange dates back to the 1920s. However, the present-day definition of like-kind exchange was introduced in the 1950s. Pursuant to IRC 1031, a taxpayer can defer tax on gain from the sale of a business or investment property if it is being exchanged for like-kind property. Both personal and real property qualified for tax deferral treatment under pre-2018 IRC 1031. Real property is generally...
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KROST Quarterly is a digital publication that highlights some of the hot topics in the accounting and finance industry. Volume 2, Issue 1 covers real estate trends and news including Opportunity Zones, Delaware Statutory Trusts, Cost Segregation, 1031 Exchange, Green Building Tax Incentives, and Qualified Improvement Property.